Effects of the Oil Shocks, Interest Rate, and Current Account Balance on the Sovereign Debt of CEMAC Member Countries — Oak Academic Publishing
Research ArticleOpen AccessGoogle Scholar indexed
Effects of the Oil Shocks, Interest Rate, and Current Account Balance on the Sovereign Debt of CEMAC Member Countries
Laboratoire de Recherches et d’Etudes Economiques et Sociales (LARES), Faculté des Sciences Economiques, Université Marien Ngouabi, Brazzaville, Congo
,
Laboratoire de Recherches et d’Etudes Economiques et Sociales (LARES), Faculté des Sciences Economiques, Université Marien Ngouabi, Brazzaville, Congo
1 Laboratoire de Recherches et d’Etudes Economiques et Sociales (LARES), Faculté des Sciences Economiques, Université Marien Ngouabi, Brazzaville, Congo
2 Laboratoire de Recherches et d’Etudes Economiques et Sociales (LARES), Faculté des Sciences Economiques, Université Marien Ngouabi, Brazzaville, Congo
The objective of this paper is to analyze the effects of oil shocks, interest rates and balance of payment on the sovereign debt of member countries of the Central African Economic and Monetary Community (CEMAC) from 1998 to 2018 using the nonlinear autoregressive distributed lag (NARDL) method. The obtained results demonstrate short- and long-term asymmetric relationships among oil shocks, interest rate, and balances of payment on the sovereign debts of these countries. A positive long-term shock increases sovereign debt, while debt services deteriorate during negative short-term shocks, which demonstrates the procyclical behavior of the debt of these countries. These results enable us to formulate implications for economic policies to improve budget management and diversify the economy.
KeywordsAsymmetriesSovereign DebtOil ShocksInterest RateBalance of PaymentNARDL
Abdel-Latif, H., Osman, R. A., & Ahmed, H. (2018). Asymmetric Impacts of Oil Price Shocks on Government Expenditures: Evidence from Saudi Arabia. Cogent Economics & Finance, 6, Article ID: 1512835. https://doi.org/10.1080/23322039.2018.1512835
Adedeji, A. N., Ahmed, F. F., & Muhammed, M. (2018). Empirical Evidence of Oil Price Shocks and Oil Economy Asymmetric Nexus: The Cases of Angola and Nigeria. Advances in Social Sciences Research Journal, 5, 17-32. https://doi.org/10.14738/assrj.56.4649
Aguiar, M., & Amador, M. (2016). Sovereign Debt. In E. Helpman, K. S. Rogoff, & G. Gopinath (Eds.), Chapter 11 Handbook of International Economics (Vol. 4, pp. 647-687). Amsterdam: Elsevier. https://doi.org/10.1016/B978-0-444-54314-1.00011-2
Aguiar, M., & Gopinath, G. (2004). Defaultable Debt, Interest Rates and the Current Account. Journal of International Economics, 69, 64-83. https://doi.org/10.1016/j.jinteco.2005.05.005
Allegret, J.-P., Couharde, C., Mignon, V., & Razafindrabe, T. (2015). Oil Currencies in the Face of Oil Shocks: What Can Be Learned from Time-Varying Specifications? CEPII Working Paper No. 18. https://doi.org/10.1080/00036846.2016.1226490
Arellano, C. (2008). Default Risk and Income Fluctuations in Emerging Economies. American Economic Review, 98, 690-712. https://doi.org/10.1257/aer.98.3.690
Ayessa, E. B. (2020). Diversification économique dans les pays membre de la CEMAC: Déterminants et Effets d’atténuation des chocs. Thesis, Université Marien NGOUABI.
Bernanke, B. S., Gertler, M., & Watson, M. (1997). Systematic Monetary Policy and the Effects of Oil Price Shocks. Brookings Papers on Economic Activity, 1, 91-142. https://doi.org/10.2307/2534702
Blanchard, O. J., & Galí, J. (2008). The Macroeconomic Effects of Oil Price Shocks: Why Are the 2000s So Different from the 1970s? In J. Galí, & M. Gertler (Eds.), International Dimensions of Monetary Policy (pp. 1-77). Chicago, IL: University of Chicago Press. https://doi.org/10.3386/w13368
Bruno, M., & Sachs, J. D. (1985). Economics of Worldwide Stagflation. Cambridge, MA: Harvard University Press.
Buetzer, S., Habib, M. M., & Stracca, L. (2012). Global Exchange Rate Configurations. Do Oil Shocks Matter? European Central Bank, Working Paper Series.
Bulow, J., & Rogoff, K. S. (1989). A Constant Recontracting Model of Sovereign Debt. Journal of Political Economy, 97, 155-178. https://doi.org/10.1086/261596
Bulow, J., & Rogoff, K. S. (1988). Sovereign Debt: Is to Forgive to Forget. American Economic Review, 79, 43-50. https://doi.org/10.3386/w2623
Denton, F. (1971). Adjustment of Monthly or Quarterly Series to Annual Totals: An Approach Based on Quadratic Minimization. Journal of the American Statistical Association, 66, 99-102. https://doi.org/10.1080/01621459.1971.10482227
Di Fonzo, T., & Marini, M. (2012). On the Extrapolation with the Denton Proportional Benchmarking Method. IMF Working Papers, 2012, 21. https://doi.org/10.5089/9781475505177.001
Eaton, J., & Gersowitz, M. (1981). Debt with Potential Repudiation: Theoretical and Empirical Analysis. Review of Economic Studies, 48, 289-309. https://doi.org/10.2307/2296886
Edelstein, P., & Kilian, L. (2007). Retail Energy Prices and Consumer Expenditures. Working Paper, Ann Arbor, MI: University of Michigan.
Flood, R. P., & Olivier, J. (2005). An Interest Rate Defense of a Fixed Exchange Rate? Journal of International Economics, 66, 471-484. https://doi.org/10.1016/j.jinteco.2004.09.001
Frankel, J., & Rose, A. (1996). Currency Crises in Emerging Markets: An Empirical Treatment. Journal of International Economics, 41, 351-366. https://doi.org/10.1016/S0022-1996(96)01441-9
Goldfajn, I., & Valdés, R. (1996). The Aftermath of Real Appreciations. NBER Working Paper No. 5650. https://doi.org/10.3386/w5650
Hamilton, J. D. (1996). This Is What Happened to the Oil Price-Macroeconomy Relationship. Journal of Monetary Economics, 38, 215-220. https://doi.org/10.1016/S0304-3932(96)01282-2
Herrera, A. M., & Pesavento, E. (2007). Oil Price Shocks, Systematic Monetary Policy and the “Great Moderation”. Macroeconomic Dynamics, 13, 107-137. https://doi.org/10.1017/S1365100508070454
Hooker, M. (1996). What Happened to the Oil Price-Macroeconomy Relationship? Journal of Monetary Economics, 38, 195-213. https://doi.org/10.1016/S0304-3932(96)01281-0
Kaminsky, G. L. (2003). Varieties of Currencies Crises. NBER 10193. https://doi.org/10.3386/w10193
Kilian, L. (2008). The Economic Effects of Energy Price Shocks. Journal of Economic Literature, 46, 871-909. https://doi.org/10.1257/jel.46.4.871
Kilian, L. (2009). Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market. American Economic Review, 99, 1053-1069. https://doi.org/10.1257/aer.99.3.1053
Lahiri, A., & Végh, C. (2003). Delaying the Inevitable: Optimal Interest Rate Policy and BOP Crises. Journal of Political Economy, 111, 404-424. https://doi.org/10.1086/367682
Mankiw, N. G., Romer, D., & Weil, D. (1992). A Contribution to the Empirics of Economic Growth. The Quarterly Journal of Economics, 107, 407-437.
Pesaran, M. H., & Shin, Y. (1998). An Autoregressive Distributed-Lag Modelling Approach to Cointegration Analysis. Econometric Society Monographs, 31, 371-413. https://doi.org/10.1017/CBO9781139052221.011
Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds Testing Approaches to the Analysis of Level Relationships. Journal of Applied Econometrics, 16, 289-326. https://doi.org/10.1002/jae.616
Reinhart, C. M., & Rogoff, K. S. (2009). The Aftermath of Financial Crises. Working Paper 14656. http://www.nber.org/papers/w14656 https://doi.org/10.3386/w14656
Reinhart, C. M., Rogoff, K. S., & Savastano, M. A. (2003). Debt Intolerance. Brookings Papers on Economic Activity, 1, 1-74. https://doi.org/10.3386/w9908
Schorderet, Y. (2003). Asymmetric Cointegration. Working Paper, Geneva: Econometrics Department, University of Geneva. https://core.ac.uk/download/pdf/7134653.pdf
Shin, Y., Yu, B., & Greenwood-Nimmo, M. (2014). Modelling Asymmetric Cointegration and Dynamic Multipliers in a Nonlinear ARDL Framework. In Festschrift in Honor of Peter Schmidt (pp. 281-314). New York: Springer. https://doi.org/10.1007/978-1-4899-8008-3_9
Tomz, M., & Wright (2007). Do Countries Default in Bad Times? Journal of the European Economics Association, 5, 352-360. https://doi.org/10.1162/jeea.2007.5.2-3.352
Tomz, M., & Wright, M. L. J. (2013). Empirical Research on Sovereign Debt and Default. nber/w18855. https://doi.org/10.3386/w18855